@article{Proebsting:265713,
title = {"Does Austerity Go Along With Internal Devaluations?},
author = {Proebsting, Christian and Lambertini, Luisa},
journal = {IMF Economic Review},
year = {2019},
abstract = {Cuts to government spending rather than increases in consumption taxes are statistically associated with internal devaluations in the euro area during the period 2010-2014. Countries that cut spending experienced a decline in nominal wages, rising net exports, a fall in the relative price of non-tradables and a shift of consumption towards non-tradables. We show that these patterns are generally consistent with a neoclassical small open economy model with GHH preferences. The main remaining discrepancy between model and data is a missing terms of trade response in the data: Export prices did not decline in austere countries (nor did import prices), giving rise to asymmetric expenditure switching: Current account improvements are solely driven by falls in imports rather than increasing exports.},
url = {http://infoscience.epfl.ch/record/265713},
}